In unstable economic conditions, buyers of products and services have a tendency to revamp how they test providers’ quality assurances and costs. When buyers have been burned or let down, they retrench, protect, and learn from their mistakes.
In the investment industry, buyers are investors and these investors come in different forms. Investors are; you and me, the public; large and small corporations that sponsor retirement plans for their employees; and public pension funds that control billions of dollars of retirement benefits for city, state, and federal government workers.
The events of the stock market collapse in the fall of 2008 remind investors that their money is not guaranteed. The double whammy of a credit crisis has revealed that “institutions” – household names in the financial industry – are vulnerable to widespread failure to the point of bankruptcy, takeover, and dissolution.
The combination of these historic events in the retirement plan industry has created mistrust and deep seeded skepticism among plan sponsors. Their mistrust is directed towards money managers, recordkeepers, and investment advisors.
Here is a case in point. In response to a service provider that recently announced its merger plans, a plan sponsor client with more than $50 million in participant assets noted, “With this announcement, our committee is having a hard time trusting their advice and guidance. Of course, the next question must be: on what basis did we trust their advice and guidance when we hired them.”
The issue of provider trustworthiness, credibility, and competence is a wide scale test that is flowing down stream. As corporate executives and trustees of pension systems field more participant inquiries, complaints, and class action lawsuits, the service provider community has to respond in ways they have not needed to in the past.
Some pundits in the industry improperly suggest that service providers must be more creative in their marketing to be noticed. Amazingly, they even propose that providers need to be better now because times are tough and people are watching.
The reality is that if in the “good” times a service provider wasn’t pursuing excellence throughout the organization, committed to fee transparency, disciplined in investment philosophy, and tireless in client servicing, it’s unlikely they will rise to these standards in the tough times. Unless service providers recognize that adopting a standard of excellence and a culture of transparency is the right thing to do and that failure to do so will compromise revenue and corporate value, many energetic sales organizations will experience client defections and reduction in market share.
Investors (buyers) aren’t seeking empty warranties; they are seeking service providers that are committed to a standard of excellence that provides credibility to its claims. Investors have been reminded that they are no guarantees in the stock market. Now they want to know who is going to help them and why they should be trusted.
Fortunately for the investment industry a movement began three years ago among investment advisors, investment managers, and recordkeepers to adopt a standard of excellence and get certified against it.. Likewise, corporate retirement plans, public pensions, and foundations seeking to prove the effectiveness of their governance and monitoring system should get prepared and certified to the highest fiduciary standard.
For an online demonstration and further discussion of Roland|Criss’s certification services, contact us at 800-440-3457 ext. 16. For more information on the organization of certified fiduciaries and recordkeepers, please click here.